The new leases standard, IFRS 16, brings with it both greater transparency and a number of challenges for businesses. It requires companies to bring all operating leases on to the balance sheet for accounting periods starting on or after 1 January 2019, those still getting to grips with IFRS 16 need to act quickly to ensure compliance.
Most companies uses leases in some capacity, so the impact of IFRS 16 has been wide-ranging, impacting not just financial reporting, but also business models and processes in many departments.
What’s the issue?
Any company that prepares its accounts under International Financial Reporting Standards (IFRS) and has an accounting period starting on or after 1 January 2019 is required to apply the new leasing standard (IFRS 16).
This requires operating leases to be reflected on the balance sheet as an asset and liability. This will have an immediate impact on earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as many other financial ratios.
Not only is there a significant cost to implement and comply with the standards for existing leases, there is a knock-on effect on financing and reporting decisions across the board.
How can we help?
Our approach to IFRS 16 blends our knowledge of a wide variety of clients with our expertise from the forefront of accounting. We can help with any stage of the transition including building or refining a lease database, helping prepare your audit documentation, calculating and quantifying the impact of discount rates and implementing any necessary system changes.
Helping you calculate discount rates
Our UK member firm has developed a cost-effective technology platform to help with the most complex part of IFRS 16 - calculating discount rates. It is flexible and can be tailored to your individual business and reporting requirements. The Excel-based tool can help you to:
- analyse your leases to identify consistent ‘buckets’ that can be used to assess your leases as a portfolio
- identify the best approach to calculate the discount rates for your different classes of leases
- determine and source the key inputs for the discount rates, factoring in your credit risk, financing options and lease characteristics
- provide a matrix of the concluded discount rates for each of your leases and lease portfolios
- forecast the impact of IFRS 16 on your future reporting periods (on a lease by lease basis, per location or per asset class)
- document our methodology, and judgements made, in a format that can be provided to your external auditors
- support in responding to any queries from your external auditors and other stakeholders.